Hide Business Tumbles Downward

Ethiopia’s high potential to deliver animal skins to local and international tanneries is hampered by quality issues. Prices for hides have been falling recently as demand faltered at local tanneries who claim the 150pc tax imposed on unfinished and unprocessed raw skin is the culprit, reports DAWIT ASTATKE, FORTUNE STAFF WRITER.

A Livestock market in Kera also serves as a hide collection site for businesses that deal in animal hides.

A goatskin is shown discarded in a garbage bin and mixed with other trash near Almaziye Meda near Kera market.

Ziyad Mohammed, a father of two who is in his early 30s, is engaged with his elder brother in a small business selling fuelwood.

For the past decade, he has also made a business collecting the leather hides of slaughtered livestock that takes place during the traditional holidays in the country.

He received a week-long training by an agricultural extension office in his district on the handling of animal skins for tanning. This New Year’s holiday, which fell on September 11, 2018, he noticed a slowdown in his hide collection business.

“There have not been that many holidays when the price of animal hides has reached so low a price,” Ziyad says.

Sultan Nuri, another collector of hides, was on his way to Sarbet when Fortunecaught up with him while he was on his way to buy sheep hides from a butcher, Temesgen Wegbeza.

“I butchered two sheep for two households, and both of them offered me the raw skin for free,” says Temesgen, who was paid 150 Br a head for his door-to-door service.

Temesgen was disappointed when he sold the hides he retrieved to Nuri for 20 Br each.

“When the price of skin was 50 Br and above, it made up a good portion of my pay as a butcher,” says Temesgen. “Now they just leave it for me to take away.”

He used to be careful not to poke holes in the hides while butchering, but he has not been as careful since the price for hides has fallen.

There is ambivalence over why the price has declined so acutely over the years.

“The problem is the middlemen, who are manipulating the price,” Sultan says. “Whatever the case, the middlemen earn the highest profit because of the direct sale they make selling to the tanneries.”

But middlemen, the intermediate broker between the hide collectors and the tanneries, disagree. One of them is Hilika Shumbeza, who supplies raw skins to factories in Mojo, Oromia Regional State.

“The decline has nothing to do with the parties involved,” he says. “It is the low demand for raw skins from the tanneries that is depressing the market.”

He points to lack of adequate power supply at the tanneries that has dragged down production to a level they are uninterested in buying as many skins as they used to.

“I earn 10 Br to 15 Br in profit at a maximum, which is less than what it was the during previous holidays,” Hilika says.

His claim is corroborated by evidence of improper disposal of some hides that are found during garbage collection.

“We have found more hides thrown in the garbage than has been usual during past holidays,” says Desta Worku, a team leader at Worknesh & Friend’s Association, a waste collection and waste disposal association. “You can even find them discarded on the streets, lending a bad smell to neighbourhoods.”

The tanneries, though in agreement over their diminishing demand for hides, believe the cause is instead the 150pc export tax imposed on unfinished and unprocessed raw skin, a government policy meant to promote value addition.

“But the problem is that the factories are failing to meet the quality requirements for finished leather products at export destinations,” says Ayele Dejene, general manager of Colba Tannery Plc. “As a result, we are less willing to buy hides.”

The tannery used to buy a piece of hide for 80 Br to 100 Br, which has fallen to 50 Br in the current market.

The Ethiopian Leather Industry Development Institute, established under the Ministry of Industry to oversee the industry, believes that this is not the case.

“The tax hike has brought ample opportunity to the market and paved the way for foreign currency gains on the one hand and created job opportunities on the other,” said Birhanu Sarjabo, communications director of the Institute.

The Institute has likewise studied markets in Marketo, Betel area and Ayertena, and in the regional states, concluding that hides are neither being unnecessarily disposed of, nor is there a slowdown in the market.

“The price decline is a normal fluctuation in the market, and it sometimes goes as high as 30 Br,” Birhanu says.

Ethiopia is home to one of the largest livestock populations in Africa.

The country possesses one of the world’s largest livestock populations, standing at around 60 million, placing it in first place in Africa and sixth in the world.

The nation is also third in Africa and 10th in the world in sheep population, which is estimated at 28.9 million, in addition to 29.7 million goats, making it one of the richest countries in livestock resources.

The potential for production of hides was estimated at 3.78 million from cattle, 8.41 million from sheep and 8.42 million from goats in 2012/13.

The foreign currency earned from this resource was almost 135 million dollars in the past fiscal year, derived from the export of leather and leather products. Revenue from leather and leather product exports increased from 67 million dollars in 2004/2005 fiscal year to 115.4 million dollars in 2016/17 fiscal year.

Almost 17,000 jobs were created during the same period, which was 33pc of the target set by the Institute.

The hides and skins supplied to the tanneries have reached 1.4 million cow hides, 6.7 million goat skins, and 13.2 million sheepskins.

Currently, there are around 50 tanneries in Ethiopia that process hides into finished leather products for the domestic and export markets.

Despite huge potential, the leather industry is still constrained by the poor quality of raw materials, lack of efficient market structure, competition from local tanning industries and absence of price incentives for the production of quality raw materials, according to industry insiders.

To address the problems, the government is planning to construct an area zoned and planned for the processing of leather, dubbed “Leather City”, in Mojo.

“The current market for hides is promising,” Berhanu says. “Our only worry is the terms of trade between China and the United States, both of which are major export destinations and could hurt us if their relationship deteriorates.”